GENIUS stablecoin Bill Breakdown: Issuance Qualifications, Regulatory Red Lines, and Core Uses All Organized

Original author: Liu Feng, Partner at BODL Ventures

"A Few Points on the GENIUS Bill, a 'Historic Moment' that has Attracted Industry-wide Attention" *What is this thing for: is to create a comprehensive framework and clear "federal regulatory framework" for stablecoin issuers operating in the United States and their products, or the circulation or trading of their stablecoins within the United States.

One of the "Payment Stablecoins"

• This bill defines "payment stablecoins" and explicitly excludes such stablecoins from the classification of securities or commodities (now issuers can rest assured, right? Remember the past experiences where stablecoin issuers were troubled by being seen as "issuing securities" and stablecoins on exchanges being regarded as providing "securities trading"...)

Who can issue? One of them Key Point: The future issuance of compliant stablecoins will be regulated.

• Only entities that are registered and licensed in the United States can legally issue payment stablecoins.
• These entities can be subsidiaries of insured depository institutions (IDI), federally qualified non-bank payment stablecoin issuers approved and regulated by the OCC, and state-qualified issuers established under state law and approved by state stablecoin regulatory agencies.

Who Can Issue? Part Two

• Require similar regulation of issuers as banks, regardless of whether they are banks themselves.
• Therefore, if it is not a deposit institution that has been approved, everything else needs to be "approved".
• Of course, the bill also gives U.S. digital asset service providers (such as exchanges and trading firms) a 3-year grace period; after this grace period, it is prohibited to offer or sell stablecoins issued by unlicensed issuers.

Bottom line: No ghost employment! Key Point: Reserve Assets Mandatory Requirement 1:1

• Additionally, there are requirements for reserve assets: qualified reserve assets include US dollars, insured deposits, short-term US Treasury bills, qualified repurchase agreements, and possibly central bank reserves. Among these, the inclusion of repurchase agreements as reserve assets has faced some scrutiny.

Mandatory reserve asset requirement 1:1, Part Two

• Rehypothecation of reserves is prohibited.
• Reserves must be separated from operating funds (you cannot casually invest the reserves or chase after random high-yield opportunities! Many stablecoins in the market, are you listening?)

Prohibition of interest-bearing stablecoins:
Key point: Issuers of stablecoins are prohibited from providing returns or interest on the stablecoins they issue.

• Be clear: Issuers are prohibited from providing returns! Third-party platforms are allowed to.
• Can the issuer's affiliated company provide the income (unclear)?
• This is mainly to prevent stablecoins from directly competing with bank deposits for yields, and it aligns with the idea that stablecoins are primarily used for payments rather than investment.

What to do if the issuer goes bankrupt?

• In the event of the issuer's bankruptcy, stablecoin holders have priority claims over the reserve assets.
• Mandatory requirement for timely redemption and public disclosure of the redemption policy.

One of the "Transparency Mandates"

• Monthly public disclosure of reserve composition, certified by the CEO/CFO.
• CPA firms are required to review the publicly disclosed reserves each month (the term used by everyone is "examined," rather than the stricter "audited").

"Mandatory Transparency Requirements" Part Two

• Issuers of stablecoins with a total issuance exceeding $50 billion and that are not SEC-reporting companies must undergo an annual audit. (Democratic lawmakers have reservations about this point: this will result in the vast majority of issuers being exempt from independent financial audits due to insufficient issuance of less than $50 billion.)

Anti-Money Laundering

• The issuer must implement an AML/CIP/sanctions compliance program
• The issuer must demonstrate the technical capability to comply with legitimate U.S. orders to freeze, destroy, or halt tokens.
• U.S. intelligence and law enforcement operations are not subject to key restrictions. The Treasury may waive secondary market trading restrictions for national security reasons.
• Despite the bill's requirement for an expanded AML program, opponents have consistently challenged the bill on the grounds of insufficient anti-money laundering measures.

"How Foreign Issuers Handle"

• The bill aims to bring foreign-issued stablecoins under regulatory oversight.
• Foreign issuers must come from jurisdictions with comparable systems and be registered with the Office of the Comptroller of the Currency (OCC)

"How Foreign Issuers Handle" Part Two

• Must comply with legal orders from the United States and maintain sufficient reserves in U.S. financial institutions to meet the liquidity needs of U.S. customers.
• This aspect is also the most controversial. Opponents argue that these regulations are not strict in essence, which puts U.S. issuers at a disadvantage and encourages offshore registration.
• Actually, it is mainly aimed at Tether. I wonder what U.S. deputy-level officials such as Lutnik think?

"Payment Stablecoins" Part Two

• Payment stablecoins are defined as digital assets used for payment or settlement, whose value is pegged to the value of fiat currency and is fully backed by USD, short-term treasury bills, or similar high-quality liquid assets at a 1:1 ratio. (USDT likely does not meet this definition because a significant portion of its backing assets is BTC; algorithmic stablecoins? Don’t come to join the fun.)

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